Arab Academy for Science, Technology & Maritime Transport
Graduate School of Business
Course Title: Managerial Accounting
Instructor name: Dr. Mohammed Mostafa
Student Name: Karem Abdel Hamid Mohammed Mohammed
Registration: 21126473
1
True/False Questions
1.
Managerial accounting is a branch of financial accounting and serves essentially the same
purposes as financial accounting. False.
Financial Accounting
Managerial Accounting
1. Users
External persons who make financial
decisions; Stockholders, Creditors,
Regulators.
Internal Users Managers who plan for and control
an organization; Managers, Supervisors, Offecirs
and any employees.
2. Type Of Reports
Financial Statements, Balance Sheet,
Income Statement, Cash Flow
Statements, .. Etc
Internal reports, Job Cost Sheet, Cost of Goods
Manufactured, Porduction Cost Report, …. Etc
3. Frequency Of
Reports
Quarterly & annually
as Frequently as Needed
4. Time focus
Historical perspective
Future emphasis
Emphasis on verifiability
Emphasis on relevance for planning and control
Emphasis on precision
Emphasis on timeliness
7. Subject
Primary focus is on the whole organization
Focuses on segments of an organization
8. GAAP
Must follow GAAP and prescribed formats
Need not follow GAAP or any prescribed format
5. Verifiability versus
relevance
6. Precision versus
timeliness
2.
Managerial accounting places greater emphasis on the future than financial accounting, which
is primarily concerned with the past. TRUE
3.
Manufacturing overhead is an indirect cost with respect to units of product. TRUE
2
4.
Depreciation on office equipment would not be included in the cost of goods manufactured.
TRUE
Manufacturing cost is the sum of costs of all resources consumed in the process of making a product. The
manufacturing cost is classified into three categories: direct materials cost, direct labor cost and
manufacturing overhead.[1] It is a factor in total delivery cost.[
5.
Rent on a factory building used in the production process would be classified as a period cost
and as a fixed cost. FALSE
Rent on a factory building used in the production process would be classified as a product cost and
as a fixed cost. A fixed cost remains constant if expressed on a unit basis. Total variable cost is
expected to remain unchanged as activity changes within the relevant range.
6.
Variable costs per unit are affected by changes in activity. FALSE
Total variable cost increases and decreases in proportion to changes in the activity level.
7.
The amount that a manufacturing company could earn by renting unused portions of its
warehouse is an example of an opportunity cost. TRUE
8.
To estimate what the profit will be at various levels of activity, a manager can simply take the
number of units to be sold over the break-even point and multiply that number by the unit contribution
margin. TRUE
9.
To facilitate decision-making, fixed expenses should be expressed on a per-unit basis. False
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10.
An increase in the number of units sold will decrease a company's break-even point. False
If any change in the sales the break-Even point doesn’t change.
An increase in the variable cost per unit will decrease a company's break-even point
11.
The break-even point is the point where the total contribution margin equals total variable
expenses. False
At Break-Even Point, …… Total Contribution margin = Total Fixed Expenses.
Total Fixed Expenses/Contribution Margin Per Unit
12.
If a company has high operating leverage, then profits will be very sensitive to changes in
sales. TRUE
The company's degree of operating leverage = Contribution margin / Net Operating Income.
Multiple Choice Questions
1. Management accounting focuses primarily on providing data for: (A)
A)
internal uses by managers.
B)
external uses by stockholders and creditors.
C)
external uses by the Internal Revenue Service.
D)
external uses by the Securities and Exchange Commission.
2. Managerial accounting: (A)
A)
is more future oriented than financial accounting.
B)
tends to summarize information more than financial accounting
C)
is primarily concerned with providing information to external users.
D)
is more concerned with precision than timeliness.
3. Which of the functions of management involves overseeing day-to-day activities? (B)
A)
Planning
B)
Directing and motivating
C)
Controlling
D)
Decision making.
4. Indirect labor is a part of: (B)
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A)
Prime cost.
B)
Conversion cost.
C)
Period cost.
D)
Nonmanufacturing cost.
Types of Conversion Costs , Examples of costs that may be considered conversion costs are:

Direct labor and related benefits and payroll taxes

Equipment depreciation

Equipment maintenance

Factory rent

Factory supplies

Factory insurance

Machining

Inspection

Production utilities

Production supervision

Small tools charged to expense
5. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n): (C)
A)
period cost.
B)
direct material cost.
C)
indirect material cost.
D)
none of the above.
6. The salary paid to the president of King Company would be classified on the income statement
as a(n): (A)
A)
administrative expense.
B)
direct labor cost.
C)
manufacturing overhead cost.
D)
selling expense.
7. Direct labor cost is a part of: (C)
Conversion cost
Prime cost
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A)
No
No
B)
No
Yes
C)
Yes
Yes
D)
Yes
No
Prime cost = Direct raw materials + Direct labor
Conversion Costs = Direct Labor Costs + Manufacturing Overheads
8. Direct material cost is a: (B)
Conversion cost
Prime cost
A)
No
No
B)
No
Yes
C)
Yes
Yes
D)
Yes
No
9. Prime cost consists of: (C)
A)
direct labor and manufacturing overhead.
B)
direct materials and manufacturing overhead.
C)
direct materials and direct labor.
D)
direct materials, direct labor and manufacturing overhead.
10. Property taxes on a company's factory building would be classified as a(n): (A)
A)
product cost.
B)
opportunity cost.
C)
period cost.
D)
variable cost.
11. Fixed costs expressed on a per unit basis: (B)
A)
will increase with increases in activity.
B)
will decrease with increases in activity.
C)
are not affected by activity.
D)
should be ignored in making decisions since they cannot change.
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12. A cost incurred in the past that is not relevant to any current decision is classified as a(n): (C)
A)
period cost.
B)
opportunity cost.
C)
sunk cost.
D)
differential cost.
A sunk cost is money that has already been spent and cannot be recovered. In business
13. The following costs were incurred in January: (A)
-
Direct materials ...................................
$33,000
-
Direct labor .........................................
$28,000
-
Manufacturing overhead .....................
$69,000
-
Selling expenses ................................
$16,000
-
Administrative expenses .....................
$21,000
Conversion costs during the month totaled:
A)
$97,000
B)
$167,000
C)
$102,000
D)
$61,000
Conversion Costs = Direct Labor Costs + Manufacturing Overheads
= 28,000 + 69,000 = 97,000 $
14. The following costs were incurred in January: (B)
Direct materials ............................
$39,000
Direct labor ...................................
$26,000
Manufacturing overhead ...............
$21,000
Selling expenses ..........................
$14,000
Administrative expenses ..............
$27,000
Prime costs during the month totaled:
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A)
$86,000
B)
$65,000
C)
$47,000
D)
$127,000
Prime cost
= direct materials cost + direct labor cost
= 39,000 + 26,000 = 65,000 $
15. Aable Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
$45,000 and if direct materials are $53,000, the manufacturing overhead is: (A)
A)
$11,250
B)
$13,250
C)
$180,000
D)
$24,500
Conversion Costs
= Direct Labor Costs + Manufacturing Overheads
Conversion Costs
= 45,000 + Manufacturing Overheads
Conversion Costs
= 45,000 + 20% Conversion Costs
Conversion Costs - 20% Conversion Costs = 45,000
80% Conversion Costs = 45,000
Conversion Costs = 54250 $
So , 54,250 = 45,000 + Manufacturing Overheads
Manufacturing Overheads = 54,250 - 45,000 = 11,250 $
16. A manufacturing company prepays its insurance coverage for a three-year period. The premium
for the three years is $3,000 and is paid at the beginning of the first year. Three-fourths of the
premium applies to factory operations and one-fourth applies to selling and administrative activities.
What amounts should be considered product and period costs respectively for the first year of
coverage? (D)
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Product
Period
A)
$1,000
$0.0
B)
$250
$750
C)
$2,250
$750
D)
$750
$250

Total Insurance expense for the year = $3,000 / 3 year

Total Insurance expense for the year = $1000

Product cost (Manufacturing cost) = $1000 * 3/4 = $ 750

Period Cost (Selling and administrative cost) = $1000 * 25% = $ 250
17. Last month a manufacturing company had the following operating results: (A)
Beginning finished goods inventory ................
$72,000
Ending finished goods inventory.....................
$66,000
Sales ..............................................................
$465,000
Gross margin .................................................
$88,000
What was the cost of goods manufactured for the month?
A)
$371,000
B)
$459,000
C)
$383,000
D)
$377,000
Goods Manufactured=Total Sales-Gross margin-(Beginning finished goods inventory-Ending finished goods inventory
Goods Manufactured = 465,000 – 88,000 – (72,000 – 66,000) = 371,000 $
18. During February, the cost of goods manufactured was $83,000. The beginning finished goods
inventory was $14,000 and the ending finished goods inventory was $13,000. What was the cost
of goods sold for the month? (D)
A)
$83,000
B)
$110,000
C)
$82,000
D)
$84,000
Cost of Goods Sold a Month = Cost of goods manufactured+(beginning Goods inventory - ending Goods inventory)
Cost of Goods Sold a Month = 83,000 + (14,000 – 13,000) = 84,000 $
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19. Use the following to answer questions 19-22:
The following data (in thousands of dollars) have been taken from the accounting records of
Karsen Corporation for the just-completed year.
Sales ...................................................................
$930
Raw materials inventory, beginning .....................
$70
Raw materials inventory, ending ..........................
$40
Purchases of raw materials .................................
$190
Direct labor ..........................................................
$150
Manufacturing overhead ......................................
$210
Administrative expenses......................................
$90
Selling expenses .................................................
$120
Work in process inventory, beginning ..................
$80
Work in process inventory, ending .......................
$70
Finished goods inventory, beginning ...................
$90
Finished goods inventory, ending ........................
$140
Use these data to answer the following series of questions.
19.The cost of the raw materials used in production during the year (in thousands of dollars) was: (B)
A)
$230
B)
$220
C)
$160
D)
$260
The cost of raw material = Purchases of raw materials +(Raw materials inventory, beginning - Raw
materials inventory, ending)
The cost of raw material = 190 + (70-40) = 220,000 $
20. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: (A)
A)
$590
B)
$650
C)
$660
D)
$570
Cost of Goods Manufactured.
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= The Cost of raw Material + Direct labor Cost + Manufacturing overhead + (Work in process inventory,
beginning - Work in process inventory, ending)
Cost of Goods Manufactured = 220 + 210 + 150 + (80-70) = 590,000 $
21. The cost of goods sold for the year (in thousands of dollars) was: : (B)
A)
$680
B)
$540
C)
$640
D)
$730
22. The net operating income for the year (in thousands of dollars) was: : (A)
A)
$180
B)
$170
C)
$390
D)
$190
Net operating income for the year =
23. The contribution margin ratio is equal to: : (B)
A)
Total manufacturing expenses/Sales.
B)
(Sales - Variable expenses)/Sales.
C)
1 - (Gross Margin/Sales).
D)
1 - (Contribution Margin/Sales).
Contribution Margin Ratio = (Sales Income - Total Variable Costs) / Sales Revenue
24. In the middle of the year, the price of Lake Corporation's major raw material increased by 8%.
How would this increase affect the company's break-even point and margin of safety? (B)
Break-even point
Margin of safety
A)
Increase
Increase
B)
Increase
Decrease
C)
Decrease
Decrease
D)
Decrease
Increase
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25. The break-even point in unit sales is found by dividing total fixed expenses by: (D)
A)
the contribution margin ratio.
B)
the variable expenses per unit.
C)
the sales price per unit.
D)
the contribution margin per unit.
The contribution margin per unit = Selling price per unit – Variable cost per unit.
26. Which of the following would not affect the break-even point? (A)
A)
Number of units sold
B)
variable expense per unit
C)
total fixed expenses
D)
selling price per unit
27. If a company increases its selling price by $2 per unit due to an increase in its variable labor
cost of $2 per unit, the break-even point in units will: (C)
A)
decrease.
B)
increase.
C)
Not change.
D) change but direction cannot be determined
If any change in the sales the break even point doesn’t change.
28. Carver Company produces a product which sells for $40. Variable manufacturing costs are $18 per unit.
Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and
administrative costs are $4 per unit. A selling commission of 15% of the selling price is paid on each unit sold.
The contribution margin per unit is: (D)
A)
$7
B)
$17
C)
$22
D)
$16
Variable Cost per unit=$18 per unit+ (0.15 x 40 per unit)=$24 per unit
Unit CM=Sales of 40-Variable cost of 24=16
So the CM is $16
29. Mason Company's selling price was $20.00 per unit. Fixed expenses totaled $54,000, variable expenses
were $14.00 per unit, and the company reported a profit of $9,000 for the year. The break-even point for
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Mason Company is: (D)
A)
10,500 units
B)
4,500 units
C)
8,500 units
D)
9,000 units
Fixed expense at 54,000/ CM at 6.00= 9,000 units
30. Given the following data: (A)
Selling price per unit ...........................
$2.00
Variable production cost per unit ........
$0.30
Fixed production cost .........................
$3,000
Sales commission per unit ..................
$0.20
Fixed selling expenses .......................
$1,500
The break-even point in dollars is:
A)
$6,000
B)
$4,500
C)
$2,647
D)
$4,000

CM RATIO = TOTAL CM/TOTAL SALES

CM RATIO=1.5/2=0.75

BREAK-EVEN=FIXED EXPENSE/CM RATIO

BREAK-EVEN=4500/.75=6000
31. Darwin, Inc., sells a particular textbook for $20. Variable expenses are $14 per book. At the
current volume of 50,000 books sold per year the company is just breaking even. Given these
data, the annual fixed expenses associated with the textbook total: (A)
A)
$300,000
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B)
$1,000,000
C)
$1,300,000
D)
$700,000

TOTAL SALES =20*50000=1000000$

TOTAL VARIABLE EXPENSES= 14*50,000=700,000$

PROFIT = ZERO

FIXED EXPENSES=100,0000-700,000=300,000$
32. Company X sold 25,000 units of product last year. The contribution margin per unit was $2, and
fixed expenses totaled $40,000 for the year. This year fixed expenses are expected to increase to
$45,000, but the contribution margin per unit will remain unchanged at $2. How many units must be
sold this year to earn the same net operating income as was earned last year: (B)

A)
22,500
B)
27,500
C)
35,000
D)
2,500
Net Profit (Net Operation Income)
= Sales − Variable Expenses − Fixed Expenses
=

Contribution margin = Net Sales - variable expenses
33. Alpha Company reported the following data for its most recent year: sales, $500,000; variable
expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating leverage
is: (C)
A)
10
14
B)
2
C)
4
D)
2.5

Net Profit (Net Operation Income) = Sales − Variable Expenses − Fixed Expenses

Net Operating Income = 500,000 – 300,000 – 150,000 = 50,000 $

Contribution margin = Net Sales - variable expenses = 500,000 – 300,000 = 200,000 $

The company's degree of operating leverage = Contribution margin / Net Operating Income

The company's degree of operating leverage = 200,000/50,000 = 4
Essay Questions
1. Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per
unit, and fixed expenses total $30,000 per year.
Required
:
a. What is the total contribution margin at the break-even point?
b. What is the contribution margin ratio for the product?
c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would
net operating income be expected to increase?
d. The marketing manager wants to increase advertising by $6,000 per year. How many additional
units would have to be sold to increase overall net operating income by $2,000?
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The Solution
a) What is the total contribution margin at the break-even point?
Solution

The Unit Price = $ 20 per unit

The variable expenses = $12 per unit.

Fixed Expenses total $30,000 per year
Break Even Point
=
Fixed Cost
Selling Price Per Unit - Variable Cost per Unit
At the Breakeven Point … Total Contribution Margin = Total Fixed Cost
So that Total Contribution Margin = 30,000 $
b) What is the contribution margin ratio for the product?
Solution
Contribution Margin = Selling Price - Variable Expenses
Contribution Margin Ratio = Contribution Margin / Selling Price
Contribution Margin = 20 – 12 = 8 $
Contribution Margin Ratio = 8/20 = 0.4 = 40%
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c) If total sales increase by $20,000 and fixed expenses remains unchanged, by how much would
the net operating income be expected to increase?
Solution
The Increased sold by Unit = increased by income / unit price = 20,000/20 = 1000 units
net operating income be expected to increase
= increased sold by unit x Contribution Margin
= 1000 x 8 = 8000 $
d) The marketing manager wants to increase advertising by $6,000 per year. How many additional
units would have to be sold to increase overall net operating income by $2,000?
Solution

Advertising is fixed cost = 6000 $ per Year.

Break Even Point as unit = (30,000)/(20-8) = 3750 Units.

Additional Break Even Point as unit = (6000+2000)/(20-12) = 1000 Units.
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